Why Cyprus is facing a grave economic crisis

Why Cyprus is facing a grave economic crisis

Cyprus has escaped from the verge of bankruptcy. The collapse of Cyprus's banking system has been averted as European Union leaders on Monday agreed on a bailout package to keep Cyprus in the euro zone.

Cyprus will receive the first installment of the bailout package worth $13 billion in early May. Banks in Cyprus have been closed for more than a week and restrictions have been imposed on ATM withdrawal limit.

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Image: Protesters take part in an anti-bailout rally outside the parliament in Nicosia.Photographs: Yorgos Karahalis/Reuters.

Why Cyprus is facing a grave economic crisis

Fitch said Cyprus would need an additional 4 billion euros to support its banks and the downgrade was mainly due to the exposure of Bank of Cyprus, Cyprus Popular Bank and Hellenic Bank (Cyprus's 3 largest banks) to the Greek financial crisis.

Cyprus has been sought as a base for several offshore businesses for its highly developed infrastructure. Tourism, financial services, and shipping are money spinners for the economy.

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Image: An elderly man crosses the street in front of a branch of the Bank of Cyprus in Nicosia.Photographs: Yorgos Karahalis/Reuters.

Why Cyprus is facing a grave economic crisis

The announcement that Cyprus would impose a tax on bank accounts as part of a 10 billion euro ($13 billion) bailout broke with previous practice that depositors' savings were sacrosanct and sent a shiver across the bloc, causing the euro to tumble and stock markets to dive last week.

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Image: A man selling ballons stands in the middle of the market Ledras street in Nicosia.Photographs: Yorgos Karahalis/Reuters.

Why Cyprus is facing a grave economic crisis

Turkish Cypriot men, with a flag breakaway Turkish Cypriot state on the wall, pray at a mosque during Friday prayers in Famagusta's Tatlisu village, in the Turkish-administered northern part of Cyprus.

Why Cyprus is facing a grave economic crisis

Flags of Northern Cyprus (2nd R) and Turkey (R) are seen in front of an Orthodox church (L) and a mosque, in the main square of Dipkarpaz, Riso Karpaso, some 150 km (93 miles) east of Nicosia, in the Turkish administered northern part of Cyprus.